hwo presentation 2013 v3 - high arctic energy services · corporate presentation ... • high...

High Arctic Energy ServicesCorporate Presentation

Symbol: HWO

Disclaimer

This presentation may contain information which is forward-looking and is subject to important risks and

uncertainties. The results or events predicted in this information may differ from actual results or events.

Actual results may differ materially from management expectations, as projected in such forward looking

statements for a variety of factors, including market and general economic conditions and the risks and

uncertainties detailed in the most recent Interim Financial Statements along with the Corporation’s

Management Discussion and Analysis and the Annual Information form for the year ended December 31,

2011. These documents can be found on SEDAR (www.sedar.com).

2011. These documents can be found on SEDAR (www.sedar.com).

Due to the potential impact of these factors, the Corporation disclaims any intention or obligation to

update or revise any forward looking statements, whether as a result of new information, future events, or

otherwise, unless required by applicable law.

Corporate Profile

• High Arctic Energy Services Inc. (“HWO” of the “Company”) is a growth oriented, dividend

paying company whose principal focus is to provide contract drilling and specialized well

completion services, equipment rentals and related services to the oil and gas industry in

Western Canada and Papua New Guinea (“PNG”)

• Shares outstanding: 49,757,542

• Share Price (as at Jan 25, 2012): $2.72

• Market Cap : $135.3 million

• Market Cap : $135.3 million

• Net Debt*: ($7.8) million

• Enterprise Value: $127.5 million

• Trailing 12 Month EBITDA: $40.6 million

• EV / EBITDA Multiple: 3.1 x

• Annual Dividend: $0.12

• Canadian Tax Losses: ~$90.0 million

• Average Trading Volume: 32,700

• Insiders’ Ownership: 75.1%

*(Bank debt net of cash)

Investment Highlights

• Deep value investment opportunity – currently trading at 3.1 x trailing EV/EBITDA

• Proven management team and board of directors who have redirected the operations of the

Company from near insolvency to a financially strong entity

• Industry leading net income margin (21.2%)*, return on PP&E (50.4%) * and return on equity

(36.8%)*

• Very strong cash position and balance sheet for continued growth

• Sustainable monthly dividend (4.4% yield) and conservative basic pay-out ratio (17.6%) with

• Sustainable monthly dividend (4.4% yield) and conservative basic pay-out ratio (17.6%) with

upside dividend potential

• The Company has Canada’s largest fleet of stand alone snubbing units, in a high growth

service subsector, necessary for the majority of newly drilled liquids rich wells, deep and

shallow gas wells and high pressure oil wells

• Service contracts with large international producers in prolific, undeveloped and

underserviced market - PNG

* Based on LTM trailing, ended Sept 30, 2012

Management/Directors

• Management• Bruce Thiessen, CEO

• Dennis Sykora, Executive VP & General Counsel

• Kevin Doran, VP International Operations

• Ken Olson, CFO

• Daniel Beaulieu, VP Canadian Operations

• Board of Directors• Michael Binnion, Chairman (Questerre Energy Corporation)

• Daniel Bordessa, Cyrus Capital Partners LP

• Christopher Warren, Warren Sinclair LLP

• Simon Batcup, Sylogist Ltd.

• Steven Vasey, Canadian Integrated Seismic Solutions

• Bruce Thiessen, CEO


See Appendix A and B for Management and Directors biographies

High Arctic Operations

• Canada

• Largest supplier of stand alone snubbing units and related services in the WCSB

(~24% snubbing market share)

• Most modern fleet of innovative and proprietary underbalanced workover rigs (UB 250k)

• Leading nitrogen pumper and transport provider

• Diversified top tier customer base

• Papua New Guinea (“PNG”)

• Most active drilling and workover contractor in PNG

• Largest rig mat and service rental provider in PNG

• Long-term contracts with Oil Search Limited (“OSL”), an $8.5 billion market cap company who is the

largest oil and gas producer in PNG

• $19 billion, and growing, committed to the construction of a LNG facility in PNG – 2014 completion

• Committed PNG management team with strong in-country operational expertise

• Workforce > 250 employees (39% expats)

• Underserviced, extensive exploration and development potential and stable operating jurisdiction

• Close proximity to Australia infrastructure and Asian LNG market

Customers

• Working with large domestic and multi-national producers provides stability

throughout oil and gas pricing cycles

PNG Clients CDN Clients

Canadian Operation Assets

• Snubbing units – 15 stand alone units and 5 rig assist units

• 3 underbalanced workover rigs – UB 250k

• 1 high rate and 11 low rate nitrogen pumpers

• 5 nitrogen transporters

Stand Alone/Rig Assist UB 250k Units Nitrogen Pumpers

High Rate N2 Pumper

Stand Alone/Rig Assist UB 250k Units Nitrogen Pumpers

Nitrogen Transport

What is Snubbing?

• Snubbing is the use of hydraulic force to push pipe against the snub force created by the wellpressure. The push force is required until the total tubing weight is greater than snub force excretedon the tubing

• The pushing capacity of the snubbing unit is also useful on long horizontal legs where thegravitational weight of the pipe decreases as the horizontal length increases. This is due toincreased friction of metal on metal

• Unlike coiled tubing – snubbing uses jointed tubing. The stronger jointed tubing allows the

• Unlike coiled tubing – snubbing uses jointed tubing. The stronger jointed tubing allows thesnubbing unit to rotate the tubing/drill string, decreasing friction in wellbores and ultimatelyreaching depths that coil cannot attain

• Snubbing permits live operations without killing the well, saving on unnecessary services, mudfluids, well stimulations and avoid formation damage bringing the well on stream much quicker

• Required on multi stage frac completions and high pressure oil and liquids rich gas wells which arefracked and completed under pressure

• Snubbing units are multipurpose – completion strings, fishing, milling, sidetracking, compositebridge plug drill outs, plug and abandonment and tool movement

Where is Snubbing Required?

Producing Wells

• Allows workover operations on live wells without the use of damaging kill fluids

• Recompletion of aged wells. Snubbing is the most common method to install smaller

diameter tubing strings under pressure to increase the flowing velocity in depleted wellbores

New Drills

• Directional drilling and multi stage fracking creates demand for snubbing services in North

• Directional drilling and multi stage fracking creates demand for snubbing services in North

America because wells are completed in underbalanced conditions

• High pressure liquids rich wells (Montney, Horn River, Duvernay, etc) and many high pressure

oil wells (Duvernay, Bakken, Cardium) may also require snubbing

• Sensitive well formations – working in an underbalanced state. No formation damaging fluids

required

Abandonments

• Whenever pressure may be present, cost effective mobilization and rig ups

CDN Business Segments

Snubbing

• See slide 9 and 10

Underbalanced Workover Rig (UB 250k)

• The UB 250k is a specialized rack and pinion mast type rig capable of:

• underbalanced drilling/workover/snubbing

• milling

• work overs and completions that require operating at greater depths than conventional snubbing or coil tubing

• Many multi-fracked horizontal well bores in excess of 5,000 meters cannot be completed with

• Many multi-fracked horizontal well bores in excess of 5,000 meters cannot be completed with

coil tubing due to frictioning out. The UB 250k can be utilized to mill out bridge plugs in excess of

6,000 meters requiring a single trip

• Many SAGD wells require some sort of pushing or pulling of the production string

• Potential new market for existing technology

Nitrogen

• Nitrogen is a non-hydrocarbon inert gas commonly used on the same wellbores as snubbing

• Common uses for nitrogen in the drilling process include:

• coiled tubing cleanouts

• after frac cleanouts

• wellbore pressure testing

• vessel purging

• hydrocrabon blanketing

UB 250k vs. Coil Tubing Length

Papua New Guinea Overview

• Independent, established democracy and a stable business jurisdiction

• Recognized as the 7th fastest growing economy in the world in 2011

• Part of the Commonwealth (former territory of Australia)

• Abundant in metals, hydrocarbons and minerals

• Population: ~7.0 million

• Underdeveloped infrastructure

PNG Operations

• HWO is the most active drilling and workover contractor and service provider in PNG with

minimal commitment of capital assets

• Strong relationship with Oil Search Limited, the largest oil producer in PNG

• Operator of 2 heli-portable drilling rigs in PNG (6 drilling rigs currently operating in the country –

2 High Arctic, 2 Nabors, 1 Parker and 1 Interoil)

2 High Arctic, 2 Nabors, 1 Parker and 1 Interoil)

• Owner and operator of the only heli-portable workover rig

• PNG is an underserviced market with extensive undeveloped oil and gas resources

• Track record of 5+ years operations in PNG

• No seasonal disruptions result in year round operations

Services Provided and Contracts Signed in PNG

• Managing 2 heli-portable drilling rigs (rigs #103 and #104) for OSL, contracted until Dec 2013

• Own and manage the only heli-portable hydraulic workover rig in the country (rig #102)

contracted until May 2014

• Exclusive provider of DuraBase Mats in PNG – exit 2012 with 7,345 mats under contract

• Camp services – 5 camps contracted

• HWO operates two 93 men drilling rig camps and two 32 men leap frog camps – under contract

• HWO purchased a newly built 104 man rig camp in 2012, operations to commence January 2013 –

under payout contract

• All camps are heli-portable

• Other rental equipment owned by HWO includes a fleet of cranes (ranging from 30 ton to 160

ton), rig move trucks, forklifts, river pumps and light towers – under varying term contracts

Who is Oil Search Limited (OSL)?

• Public oil and gas exploration company (OSH-A) headquartered in Sydney, Australia

• Market capitalization of $8.5 billion ($USD)

• Current net production ~18,500 boe/d (only oil)

• Operating in PNG since 1929

• PNG’s largest producer and most active operator

• PNG government is one of OSL’s largest shareholders (15% of OSL’s outstanding shares)

• Operates all of PNG’s currently producing oil and gas fields

• Operates all of PNG’s currently producing oil and gas fields

• Currently commencing a significant growth phase

• 29% partner in the $19.0 billion OSL/Exxon LNG project

• HWO is OSL’s exclusive drilling contractor in PNG

PNG OSL / Exxon - LNG Project

• Commenced in 2010 with first LNG sales on track for 2014

• Project budget: $19.0 USD billion

• Exxon is the operator (33.2%) and partners include:

– OSL (29.0%)

– PNG government (16.8%)

– Santos Ltd. (13.5%)

– Nippon Oil (Japan) (4.7%)

– Nippon Oil (Japan) (4.7%)

– PNG landowners (2.8%)

• 6.6 million tonnes per annum (mtpa) of LNG are fully contracted to TEPCO, Osaka Gas, CPC

from Taiwan and Sinopec

• Over the project’s expected 30 year timeframe, total forecast production includes 9.0 tcf of

natural gas and 200+ million bbls of associated liquids

• Significant OSL/Exxon discovery on Pnyang lands was successfully drilled by HWO with rig

#103

PNG Operations

• Pynyang region – HWO rig 103

• Hides region – Nabors drilling rigs

• Kutubu region (OSL operations )

• Kutubu region (OSL operations )

HWO rig 104 and 102

• Interoil – smaller rigs owned by

Interoil

PNG Political Landscape

• Parliamentary system with Prime Minister

• Recent political struggle over the Prime Minister resolved peacefully and within the law

• Open to foreign capital and investment

• No restrictions on repatriation of foreign profits

• Judicial and court system modeled after Australia since independence in 1975

• Well defined tax system

• High demand for local labour, wages are reasonable and unrest minimal

• High demand for local labour, wages are reasonable and unrest minimal

• On average, HWO pays in excess of country standards

• Community land owners permit access to operational sites, relationships well managed and

maintained

Areas of Corporate Focus

• Continue to invest free cash flow in organic growth opportunities with strong financial returns

• expand PNG matting and equipment rental business

• expand PNG camp service offering

• expand existing service offerings in nitrogen and equipment rentals in Canada

• Strong balance sheet, unutilized debt capacity combined with increase in share price creates

opportunities to capitalize on acquisition opportunities

• complementary services in Canada

• increase exposure to oil (SAGD)

• Deploy underutilized equipment

• UB 250k rigs

• Possible geographical expansion to the US (Bakken play)

• Maintain leadership position in specialized well completion services

• maintain high quality equipment base

Operational Update (2012)

• Canada 2012 capex budget was $11 million

• two nitrogen pumpers scheduled for Q1 2013 delivery

• high pressure blow out preventer package scheduled for Q1 2013

• three standalone and three nitrogen retrofits to be deployed in Q1 2013

• upgraded one UB 250k

• purchase land in Grande Prairie for facility (build scheduled for 2013)

• UB 250k expected to deploy in Q3 2013

• PNG mats – added 2,016 mats in 2012, most of which were delivered in Q4 2012. 7,345 mats

under contract at year end

• PNG – moved to full two rig (103 and 104) drilling program in November 2012, service rig 102

operated throughout 2012, and 2013 prospects look encouraging

• New additional rig camp to go into service January 2013

Financial Overview

Financial Performance – LTM Trailing

(in $ CDN millions) Dec, 2010 Mar, 2011 Jun, 2011 Sep, 2011 Dec, 2011 Mar, 2012 Jun, 2012 Sep, 2012

CDN Revenue 39.1 42.0 41.3 43.3 47.0 50.1 50.2 52.2

PNG Revenue 80.2 78.6 81.8 80.1 80.2 83.4 88.0 92.5

Total Revenue 119.3 120.6 123.1 123.4 127.2 133.5 138.2 144.7

EBITDA 34.3 34.5 32.6 32.4 33.4 37.2 38.5 40.6

CFFO 20.2 24.2 27.3 27.5 30.0 33.0 33.7 37.1

Net Income 14.5 17.2 14.6 14.9 18.0 21.4 27.2 30.7

Net Debt* 12.2 4.3 4.2 9.1 0.7 -6.5 -12.8 -7.8

PP&E 45.5 45.0 48.4 53.7 51.9 50.6 54.2 60.9

Shareholders’ Equity 41.8 49.8 49.6 56.8 63.6 73.8 80.5 83.4

Shares Outstanding (mm) 50.2 50.4 49.6 49.6 49.6 49.6 49.7 49.8

*Net Debt: Bank debt - cash

Appendix A – Management Bios

• Bruce Thiessen, CEO/Director• Bruce Thiessen has been with High Arctic Energy Services for 18 years, serving as CEO since early

2009. Prior to this he served as the Company’s VP of Marketing. Before joining High Arctic, Mr.Thiessen was with a major oilfield services company, working from field sales to marketing manager.Mr. Thiessen has been working in the oil and gas industry for 27 years and has over 36 years of salesand marketing experience.

• Dennis Sykora, Executive VP & General Counsel/Director• Dennis Sykora has been with High Arctic since April 2007 primarily in his role as Executive Vice

President and General Counsel. In addition to his duties as General Counsel, he provides executive

President and General Counsel. In addition to his duties as General Counsel, he provides executivesupport primarily for the international operations and finance functions. Mr. Sykora has worked for15 years in the oilfield services industry, with a focus on international operations. Prior to joiningHigh Arctic, he was president of international operations for a Canadian-based drilling contractor.Prior to, he spent 15 years as a lawyer and chartered accountant, specializing in tax planning for theoil industry. Mr. Sykora is a member of both the Law Society of Alberta and the Institute of CharteredAccountants of Alberta.

• Ken Olson, CFO• Ken Olson recently joined HWO as Chief Financial Officer. Mr. Olson has over 20 years of experience

as a senior executive in financial and management roles. Prior to joining High Arctic, Mr. Olson was inother senior management roles including VP Finance at Sanjel Corporation and VP Finance at CSIWireless Inc. Prior to, Mr. Olson was a manager at PricewaterhouseCoopers. He is a member of theInstitute of Chartered Accountants of Alberta.

Appendix A – Management Bios

• Daniel Beaulieu , VP Canadian Operations

– Dan Beaulieu joined High Arctic in January 2012 as VP of Canadian Operations. Prior to joining High

Arctic Energy Services, he held a position of region business unit manager at Weatherford where he

managed various integrated product lines thoughout Canada. After spending 8 years in the service

rig industry, he started D-2 Oilfield Rentals which sold to a major competitor in 1998. Mr. Beaulieu

has 35 years oilfield services experience.

• Kevin Doran, VP International Operations

– Kevin Doran joined High Arctic Energy Services in 2006 as the country manager for the PNG

– Kevin Doran joined High Arctic Energy Services in 2006 as the country manager for the PNG

operations. Following service in the British Royal Navy. Mr. Doran began his career at Deutag Drilling

in 1979. He has significant international experience in the North Sea, Gabon, Algeria, Nigeria, UAE,

Saudi Arabia, Bahrain, Qatar, Iran, Pakistan, India, Kazakhstan, Thailand, Australia and PNG.

Appendix B - Directors Bios

• Michael Binnion, Chairman

– President and CEO of Questerre Energy Corporation (QEC-T) since November 2000.

• Daniel Bordessa, Independent

– Partner, Cyrus Capital Partners LP and Managing Director, Cyrus Capital Partners Europe, LLP since

March, 2005.

• Christopher Warren, Independent

– Partner of the law firm Warren Sinclair LLP in Red Deer, AB.

– Partner of the law firm Warren Sinclair LLP in Red Deer, AB.

• Simon Batcup, Independent

– VP, Operations of Sylogist Ltd. (SYZ-V) since October, 2010.

• Steven Vasey, Independent

– Independent geophysical consultant.

• Bruce Thiessen, CEO

– See slide 23.


– See slide 23.

Appendix B – PNG Images

Hydraulic Workover Rig 102 Rig 104 Rig 103 Leap Frog

Contact Info

High Arctic Energy Services Inc.

8112 Edgar Industrial Drive

Red Deer, AB Canada T4P 3R2

Website: www.haes.ca

Bruce Thiessen, CEO Ken Olson, CFO

Ph: (403) 340-9825 Ph: (403) 340-9825

Email: [email protected] Email: [email protected]

Trading Symbol: HWO - T

Banker: HSBC Bank of Canada

Auditors: PriceWaterhouseCoopers LLP

Legal: Davis LLP

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